Banking and Fintech working in sync and supporting each other is not a new concept. The usage of technology to assist financial services began with the emergence of the first credit cards in the 1950s, internet banking in the 1990s, and for this decade, contactless payments. It has dynamically grown to favor the banking industry, which has the opportunity to leverage fintech for services and improve overall as a sector. However, many skeptics predict that this intermingling of banks and fintech is just a fad, and won’t last for a long time.
Surprisingly, this list of skeptics includes Denise Leonhard, formerly the head of Global Credit Expansion, Business Development, and Strategy at PayPal. According to her, “[Nobody] is going to be able to do it alone. To get to the next evolution of payments, it’s going to be really partnership driven. Established firms offer fintechs a level of scale they wouldn’t be able to access otherwise. [Fintechs] may have a great unique solution, but they can’t actually scale, and you need scale to drive forward.”
Another skeptic that believes that this partnership between FinTech and Banks might be just a fling after all is Publicis.Sapient’s Dr.Louise Beaumont, who believes that partnerships might not be able to generate the quantum leap banks need to move towards a more customer service-centric environment. According to her, “at best, they may gain a workable solution that squats awkwardly in the existing infrastructure and brand. At worst, banks will fail to deliver any noticeable difference to customers beyond a flurry of press releases.” Moreover, this partnership between banks and fintech has often been termed as a ‘meme’ with a short shelf life.
However, there are plenty of arguments that outweigh the critics of this important movement.
Fintech for a more customer-centric banking sector
Financial Technology for banking has revolutionized the way consumers and banks interact with each other. It has made financial inclusion more viable and accessible, thanks to the easy to use technology and direct access it provides to customers. Currently, about 1.7 billion people across the globe do not have bank accounts. Through innovative techniques and niche technology, fintech is working towards bridging this gap.
Fintech is also paving the way for a more consumer-centric and customer-centric banking sector, by providing 24/7 access to services and assistance. For the next few years, channel diversification will be a key driver in the banking industry, with over 90% of banks expecting growth in the usage of mobile apps, higher than any other financial sector. The ‘mobile-first’ approach is pushing this synchronicity between fintech and the banking sector as products and services are now being designed to enhance customer engagement via mobiles.
Other innovations include customer service chatbots, which have been highly efficient to streamline customer interactions, including query resolution, and redirecting them to relevant departments for a better experience.
Fintech for improving the back end of financial services
Fintech has assisted the banking sector by improving the efficiency of backend services and continues to do so with new innovations that make processes simpler, faster, and less prone to human errors. Through the use of Artificial Intelligence, fraud detection is already more effective and fast, and real-time alerts of potentially fraudulent transactions can help in avoiding huge losses of both money and customer data. The fintech sector has also made branchless banking possible, reducing a bank’s dependency on its physical infrastructure to function.
Another great example of fintech assisting banks has been the Automated Clearing House (ACH) technology that has made interbank payments more seamless and their processing smoother when it comes to electronic payments. These include bill payments, dividends payments, salary, social security, insurance premiums, and mortgages. Finally, through improved customer service, feedback, and interactions, the back-end is set to benefit from this inflow of data and information to make processes more efficient and coherent.
Not a fling, but a win-win partnership
The fintech ecosystem and the banking sector have collaborated in the past, and will most likely continue to do so in the future. Both sectors are set to profit from this partnership, as fintech startups provide new and cutting edge products and services, for which banks will serve as a market. Banks will benefit from this as it will improve their processes and overall operations, and hence, it’s a win-win partnership.
Needless to say, this comes with its own set of challenges such as differences in work cultures, clash of leaderships, security and data issues, and more. However, innovation is key, and through constant development and advancement of technology, these technical errors and threats are set to decline in the upcoming years. As for effective collaboration between the two sectors, it’s already underway with processes in place to accommodate differences and make the most of existing and potential growth opportunities.